Assume the car can be purchased for 0% down for 60 months (in lieu of rebate).

Question

A car with a sticker price of $42,900 with factory and dealer rebates of $5,100
(a) Find the monthly payment if financed for 60 months at 0% APR. (Round your answer to the nearest cent.)
$

(b) Find the monthly payment if financed at 2.5% add-on interest for 60 months. (Round your answer to the nearest cent.)
$

(c) Use the APR approximation formula to find the APR for part (b). (Round your answer to one decimal place.)
%

(d) State whether the 0% APR or the 2.5% add-on rate should be preferred.
0% APR
2.5% add-on rate

Answer 1

a. (42,900-5100)/60 =

b. Po = 42900 - 5100 = $37,800.

P = Po*r*t/(1-(1+r)^-t)

r = (2.5%/12)/100* = 0.00208 = Monthly %
rate expressed as a decimal.

t = 60 Months.

P = (37,800*0.00208*60)/(1-1.00208^-60)
= $40,251.02

Monthly Payments = P/t